See attachmentREAD THIS FIRST Case: APEX CARBON FIBERS Learning Objectives To successfully apply...

Question

See attachmentREAD THIS FIRST 	Case: APEX CARBON FIBERS 	Learning Objectives 	To successfully apply financial analysis and decision making techniques covered in the course 	to a comprehensive case study, and to make the relevant observations and recommendations. 	Guidelines 	1	Closely examine the questions you have to answer. 	2	Proceed to answer the questions, one-at-a-time, as you refer to the needed explanatory material. 	3	Give yourself enough time to prepare comprehensive answers that show what you learned; edit your work before you submit it. Writing craft and grammar counts. 	4	Weights: Q1-Q5: 15% each; Q7: 25%. The answer to Q6 has been provided to you 	  	Questions 	Use answer boxes on the question tabs. Keep each answer inside of its answer box. 	Q1	Using historical financial ratios, judge Apex's performance. 		What information would you need to appraise its business risk and financial risk? Do so to the extent possible. 	Q2	Explain the meaning of Apex's financial statement forecast, i.e., what is the external financing required? 		Can Apex repay the loan, and is the loan within Apex's debt capacity? 	Q3	Calculate Apex's k-wacc. Explain. 	Q4	Calculate NPV, PI, IRR and PP for the proposed robotics project. Then, explain whether or not 	 	Apex should green-light or red-light the proposed investment project. 	Q5	Calculate and explain fully the equity value of the business and whether it could be an LBO target. 	Q6	Is equity financing a reasonable alternative to borrowing? Explain.					The answer to this question has been provided to you 	Q7	UNRELATED TO APEX 		Explain to a group of people without a background in finance, using language they can understand and without jargon, 		why the equity risk premium (ERP) is, simultaneously, both so simple and so complex. 		THERE IS NO SINGLE CORRECT ANSWER.			THE PURPOSE OF THE ASSIGNMENT IS TO DEMONSTRATE				WHAT YOU HAVE LEARNED TO DO IN THIS COURSE. 		USE TEMPLATE RESULTS , CASE FACTS, AND YOUR JUDGMENT. 		THINK LIKE A PROFESSIONAL… NOT LIKE A STUDENT. 		DISPLAY YOUR ABILITY TO THINK CRITICALLY/ANALYTICALLY. 		WRITE PROFESSIONALLY Ratio Interpretation 	SAMPLE TABLE 	RATIO / YEAR	2010	2011	% CHANGE	INTERPRETATION	NUMERATOR	DEMONINATOR	  	Liquidity Ratios 	Current ratio	1.6	1.3	-21%	negative, less liquidity	current assets	current liabilities 	Quick ratio	1.1	0.8	-21%	negative, less liquidity	curr assets-inventory	current liabilities 	Days sales in receivables	75.4	56.3	-25%	positive, quicker collections	receivables	revenue/365 days 	Days cost of sales in inventory	59.9	54.0	-10%	positive, faster turnover	inventory	cost of sales/365 days 	Days cost of sales in payables	47.6	65.0	37%	negative, paying more slowly	payables	cost of sales/365 days 	Leverage Ratios 	Long-term debt to total capital	57.9%	45.5%	-21%	positive, less financial risk	l-t leases+loans+debt	l-t leases+loans+debt+equity 	Long-term debt to equity	137.4%	83.5%	-39%	positive, less financial risk	l-t leases+loans+debt	equity 	Times interest earned	1.8	3.8	109%	positive, better coverage	operating profit (EBIT)	finance costs 	Full burden coverage	1.5	3.1	107%	positive, better coverage	oper profit + lease exp	finance costs + (lease exp/[1-tax rate]) 	Efficiency (Asset-Use) Ratios			  	Fixed asset turnover	1.2	1.4	19%	positive, faster turnover	revenue	total non-current assets 	Total asset turnover	0.8	1.0	21%	positive, faster turnover	revenue	total assets 	Profitability Ratios			  	Gross margin	23.9%	34.9%	46%	positive, big improvement	gross profit	revenue 	Operating profit margin	6.8%	11.3%	65%	positive, bigger improvement	operating profit (EBIT)	revenue 	Return on sales	2.7%	8.6%	216%	positive, still bigger improvement	net profit	revenue 	Return on total assets (ROA)	2.2%	8.5%	283%	positive, still bigger improvement	net profit	total assets 	Return on equity (ROE)	6.8%	21.2%	212%	positive, big improvement	net profit	equity 	Return on invested capital (ROIC)	4.7%	9.4%	100%	positive, big improvement	EBIT*I1-tax rate)	total assets 	DuPont Formula			  	DuPont Formula - ROE	6.8%	21.3%	212%		profitability x efficiency x leverage 	  Profitability	2.7%	8.6%	216%	positive, big improvement	net profit	revenue 	  Efficiency	0.8	1.0	21%	positive, better turnover	revenue	total assets 	  Leverage	3.1	2.5	-19%	positive, less financial risk	total assets	equity 	ROE Check	6.8%	21.2%	212%	calculation check to verify row 121	net profit	equity 	Compound Annual Growth Rates 	Revenues		40.8%		 	2010 - 2009	2009 	Gross profit		105.7%		 	2010 - 2009	2009 	Operating profit (EBIT)		131.9%		 	2010 - 2009	2009 	Total assets		16.0%		 	2010 - 2009	2009 About APEX Q1 Q2 FIN'L STATEMENTS&RATIOS 	APEX CARBON FIBERS								ANSWER QUESTIONS BEGINNING AT ROW 70 	Historical and Projected Financial Statements 	Years Ended December 31. Assume today is December 31, 2021 	(000)	2018	2019	2020	2021		2022	2023 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	Sales	71,924	80,115	92,613	106,042		110,284	114,695 	Operating expenses: 	 Production costs and expenses	33,703	38,393	46,492	53,445		55,142	57,348 	 Admin. and selling expenses	16,733	17,787	21,301	24,633		25,365	26,380 	 Depreciation	8,076	9,028	10,392	11,360		15,260	19,160 	    Total operating expenses	58,512	65,208	78,185	89,438		95,767	102,887 	    Operating profit	13,412	14,907	14,428	16,604		14,517	11,808 	 Interest expense	3,487	3,929	6,227	7,614		8,227	8,967 	Earnings before taxes	9,925	10,978	8,201	8,990		6,289	2,841 	Income taxes	2,432	2,690	2,009	2,203		1,541	696 	Net earnings	7,494	8,288	6,192	6,787		4,748	2,145 	Dividends to all common shares	2,000	2,000	2,000	2,000		2,000	2,000 	Retentions of earnings	5,494	6,288	4,192	4,787		2,748	145 	(000)	2018	2019	2020	2021		2022	2023 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	Assets 	Cash	4,816	5,670	5,090	5,795		5,795	5,795 	Accounts receivable	22,148	25,364	28,078	35,486			0	H25 will populate automatically once you enter the formula/value in G25 	Inventories	23,301	27,662	53,828	63,778		63,778	63,778 	  Total current assets	50,265	58,696	86,996	105,059		69,573	69,573 	Gross property plant & equipt.	64,611	80,153	97,899	115,153		115,153	115,153 	Accumulated depreciation	-4,559	-13,587	-23,979	-35,339		-46,699	-65,859 	Net property plant & equipt.	60,052	66,566	73,920	79,814		68,454	49,294 	Total assets	110,317	125,262	160,916	184,873	 	138,027	118,867 	Liabilities and stockholders' equity: 	Short-term borrowings (bank)	29,002	35,462	69,005	82,275	  	91,226	102,023 	Accounts payable	12,315	12,806	11,890	13,370			0	H35 will populate automatically once you enter the formula/value in G35 	Other accrued liabilities	24,609	26,315	25,150	21,370		21,318	21,318 	Total current liabilities	65,926	74,583	106,045	117,015		112,544	123,341 	Long-term debt	10,000	10,000	10,000	18,200		18,200	18,200 	Shareholders' equity	34,391	40,679	44,871	49,658		52,407	52,551	prev SE+RE 	Total liabilities & stockholders' equity	110,317	125,262	160,916	184,873		183,151	194,092 						EFN			Enter correct formula in G41 and H41 					 		 	 	to calculate EFN for 2022 and 2023 		2018	2019	2020	2021	% change 2018-2021	2022	2023 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	PROFITABILITY 	Operating margin	18.6%	18.6%	15.6%	15.7%	-16.0%	13.2%	10.3% 	Tax rate	24.5%	24.5%	24.5%	24.5%		24.5%	24.5% 	Return on sales	10.4%	10.3%	6.7%	6.4%		4.3%	1.9% 	Return on equity	21.8%	20.4%	13.8%	13.7%		9.1%	4.1% 	Return on assets	6.8%	6.6%	3.8%	3.7%		3.4%	1.8% 		 	 	 	 	 	 	  	LEVERAGE					  	Debt/equity ratio	113.4%	111.8%	176.1%	202.3%		208.8%	228.8% 	Debt/total capital	35.4%	36.3%	49.1%	54.3%		59.7%	61.9% 	EBIT/interest	3.8	3.8	2.3	2.2		1.8	1.3 						  	ASSET USE					  	Sales/assets	65.2%	64.0%	57.6%	57.4%		79.9%	96.5% 	Sales growth rate	15.0%	11.4%	15.6%	14.5%		4.0%	4.0% 	Assets growth rate	8.0%	13.5%	28.5%	14.9%		-25.3%	-13.9% 	Days sales outstanding	112	116	111	122		120	120 	Days payable outstanding	133	122	93	91		90	90 	Days inventory outstanding	252	263	423	436		435	435 						 			  	LIQUIDITY					   	Current ratio	0.8	0.8	0.8	0.9		0.6	0.6 	Quick ratio	0.4	0.4	0.3	0.4		0.1	0.0 	Q1a.								  	- Enter inputs in empty cells in the balance sheet (G25 and G35). Hint: review Wk 6 guideline solutions.  	- Calculate the % change (yellow highlighted cells) as (ending value - beginning value) / beginning value. F47 has been calculated for you as an example. 	- Using historical financial ratios, judge Apex's performance.  	Hint for getting started:  	See sample table in the Ratio Interpretation tab as a quick reference on how to interpret the % change to guide your analysis. 	Then add your comments below each header (Profitability, Leverage, etc.) 	Profitability 	Leverage 	Efficiency (Asset Use) 	Liquidity 	Conclusion 	Q1b. What information would you need to appraise its business risk and financial risk? Do so to the extent possible. 	Financial risk  	Business risk  	Q2a.								  	Calculate EFN in G41 and H41, and explain the meaning of Apex's external financing needed (EFN)? 	Hint: is EFN positive or negative? What does it mean? 	Q2b. 	Can Apex repay the loan, and is the loan within Apex's debt capacity?  	Debt capacity has been calculated for you in Q6 and copied here for your convenience so you can answer this question. 	Debt capacity calculation	Bust	Boom	Indifference 	EBIT	10,000	20,000	0.0 	Interest coverage ratio per rating	3.4	3.4	0.0 	Available for interest	2,941	5,882	ERROR:#DIV/0! 	Interest rate	7.6%	7.6%	0.0 	Debt capacity	38,811	77,622	ERROR:#DIV/0! 	Existing debt	100,475	100,475	0.0 	Excess debt capacity:	-61,664	-22,853	ERROR:#DIV/0! PEER DATA 	DATA ON PEER COMPANIES (COMPARABLES) 								Number of 		Percent Sales	Price/				Market	Shares	Last Annual 		from Carbon Fiber	Earnings	 	Book	Book Value	Price	Outstanding	Dividend 	    Name	Production	Ratio	Beta	 Debt/Equity	per Share	per Share	(millions)	per Share 	Peer A	20%	9.0	1.10	0.23	1.24	1.37	9.3	1.82 	Peer B	95%	NMF	1.50	1.72	1.46	6.39	177.2	0.15 	Peer C	90%	18.2	1.70	1.33	7.06	27.48	8.9	none 	Peer D	30%	34.6	1.20	0.00	17.75	75.22	48.3	none 	Peer E	45%	NMF	1.50	0.42	6.95	22.19	371.2	1.57 	Note:  NMF means not a meaningful figure.  This arises when a company's earnings or projected earnings are negative. 												 	 	  												 	 	  												 	 	  												 		  												 		  												 		  												 		  												 		  												 		  												 		  Q3 K-WACC 	WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE

Khushboo · Accepted Answer

READ THIS FIRST
	Case: APEX CARBON FIBERS
	Learning Objectives
	To successfully apply financial analysis and decision making techniques covered in the course
	to a comprehensive case study, and to make the relevant observations and recommendations.
	Guidelines
	1	Closely examine the questions you have to answer.
	2	Proceed to answer the questions, one-at-a-time, as you refer to the needed explanatory material.
	3	Give yourself enough time to prepare comprehensive answers that show what you learned; edit your work before you submit it. Writing craft and grammar counts.
	4	Weights: Q1-Q5: 15% each; Q7: 25%. The answer to Q6 has been provided to you
	 
	Questions
	Use answer boxes on the question tabs. Keep each answer inside of its answer box.
	Q1	Using historical financial ratios, judge Apex's performance.
		What information would you need to appraise its business risk and financial risk? Do so to the extent possible.
	Q2	Explain the meaning of Apex's financial statement forecast, i.e., what is the external financing required?
		Can Apex repay the loan, and is the loan within Apex's debt capacity?
	Q3	Calculate Apex's k-wacc. Explain.
	Q4	Calculate NPV, PI, IRR and PP for the proposed robotics project. Then, explain whether or not
	 	Apex should green-light or red-light the proposed investment project.
	Q5	Calculate and explain fully the equity value of the business and whether it could be an LBO target.
	Q6	Is equity financing a reasonable alternative to borrowing? Explain.					The answer to this question has been provided to you
	Q7	UNRELATED TO APEX
		Explain to a group of people without a background in finance, using language they can understand and without jargon,
		why the equity risk premium (ERP) is, simultaneously, both so simple and so complex.
		THERE IS NO SINGLE CORRECT ANSWER.			THE PURPOSE OF THE ASSIGNMENT IS TO DEMONSTRATE				WHAT YOU HAVE LEARNED TO DO IN THIS COURSE.
		USE TEMPLATE RESULTS , CASE FACTS, AND YOUR JUDGMENT.
		THINK LIKE A PROFESSIONAL… NOT LIKE A STUDENT.
		DISPLAY YOUR ABILITY TO THINK CRITICALLY/ANALYTICALLY.
		WRITE PROFESSIONALLY
Ratio Interpretation
	APEX CARBON FIBERS
	RATIO / YEAR	2010	2011	% CHANGE	INTERPRETATION	NUMERATOR	DEMONINATOR	 
	Liquidity Ratios
	Current ratio	1.6	1.3	-21%	negative, less liquidity	current assets	current liabilities
	Quick ratio	1.1	0.8	-21%	negative, less liquidity	curr assets-inventory	current liabilities
	Days sales in receivables	75.4	56.3	-25%	positive, quicker collections	receivables	revenue/365 days
	Days cost of sales in inventory	59.9	54.0	-10%	positive, faster turnover	inventory	cost of sales/365 days
	Days cost of sales in payables	47.6	65.0	37%	negative, paying more slowly	payables	cost of sales/365 days
	Leverage Ratios
	Long-term debt to total capital	57.9%	45.5%	-21%	positive, less financial risk	l-t leases+loans+debt	l-t leases+loans+debt+equity
	Long-term debt to equity	137.4%	83.5%	-39%	positive, less financial risk	l-t leases+loans+debt	equity
	Times interest earned	1.8	3.8	109%	positive, better coverage	operating profit (EBIT)	finance costs
	Full burden coverage	1.5	3.1	107%	positive, better coverage	oper profit + lease exp	finance costs + (lease exp/[1-tax rate])
	Efficiency (Asset-Use) Ratios			 
	Fixed asset turnover	1.2	1.4	19%	positive, faster turnover	revenue	total non-current assets
	Total asset turnover	0.8	1.0	21%	positive, faster turnover	revenue	total assets
	Profitability Ratios			 
	Gross margin	23.9%	34.9%	46%	positive, big improvement	gross profit	revenue
	Operating profit margin	6.8%	11.3%	65%	positive, bigger improvement	operating profit (EBIT)	revenue
	Return on sales	2.7%	8.6%	216%	positive, still bigger improvement	net profit	revenue
	Return on total assets (ROA)	2.2%	8.5%	283%	positive, still bigger improvement	net profit	total assets
	Return on equity (ROE)	6.8%	21.2%	212%	positive, big improvement	net profit	equity
	Return on invested capital (ROIC)	4.7%	9.4%	100%	positive, big improvement	EBIT*I1-tax rate)	total assets
	DuPont Formula			 
	DuPont Formula - ROE	6.8%	21.3%	212%		profitability x efficiency x leverage
	  Profitability	2.7%	8.6%	216%	positive, big improvement	net profit	revenue
	  Efficiency	0.8	1.0	21%	positive, better turnover	revenue	total assets
	  Leverage	3.1	2.5	-19%	positive, less financial risk	total assets	equity
	ROE Check	6.8%	21.2%	212%	calculation check to verify row 121	net profit	equity
	Compound Annual Growth Rates
	Revenues		40.8%		 	2010 - 2009	2009
	Gross profit		105.7%		 	2010 - 2009	2009
	Operating profit (EBIT)		131.9%		 	2010 - 2009	2009
	Total assets		16.0%		 	2010 - 2009	2009
About APEX
Q1 Q2 FIN'L STATEMENTS&RATIOS
	APEX CARBON FIBERS								ANSWER QUESTIONS BEGINNING AT ROW 70
	Historical and Projected Financial Statements
	Years Ended December 31. Assume today is December 31, 2021
	(000)	2018	2019	2020	2021		2022	2023
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	Sales	71,924	80,115	92,613	106,042		110,284	114,695
	Operating expenses:
	 Production costs and expenses	33,703	38,393	46,492	53,445		55,142	57,348
	 Admin. and selling expenses	16,733	17,787	21,301	24,633		25,365	26,380
	 Depreciation	8,076	9,028	10,392	11,360		15,260	19,160
	    Total operating expenses	58,512	65,208	78,185	89,438		95,767	102,887
	    Operating profit	13,412	14,907	14,428	16,604		14,517	11,808
	 Interest expense	3,487	3,929	6,227	7,614		8,227	8,967
	Earnings before taxes	9,925	10,978	8,201	8,990		6,289	2,841
	Income taxes	2,432	2,690	2,009	2,203		1,541	696
	Net earnings	7,494	8,288	6,192	6,787		4,748	2,145
	Dividends to all common shares	2,000	2,000	2,000	2,000		2,000	2,000
	Retentions of earnings	5,494	6,288	4,192	4,787		2,748	145
	(000)	2018	2019	2020	2021		2022	2023
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	Assets
	Cash	4,816	5,670	5,090	5,795		5,795	5,795
	Accounts receivable	22,148	25,364	28,078	35,486		36,258	36,258	H25 will populate automatically once you enter the formula/value in G25
	Inventories	23,301	27,662	53,828	63,778		63,778	63,778
	  Total current assets	50,265	58,696	86,996	105,059		105,831	105,831
	Gross property plant & equipt.	64,611	80,153	97,899	115,153		115,153	115,153
	Accumulated depreciation	-4,559	-13,587	-23,979	-35,339		-46,699	-65,859
	Net property plant & equipt.	60,052	66,566	73,920	79,814		68,454	49,294
	Total assets	110,317	125,262	160,916	184,873	 	174,285	155,125
	Liabilities and stockholders' equity:
	Short-term borrowings (bank)	29,002	35,462	69,005	82,275		91,226	102,023
	Accounts payable	12,315	12,806	11,890	13,370		13,597	13,597	H35 will populate automatically once you enter the formula/value in G35
	Other accrued liabilities	24,609	26,315	25,150	21,370		21,318	21,318
	Total current liabilities	65,926	74,583	106,045	117,015		126,141	136,937
	Long-term debt	10,000	10,000	10,000	18,200		18,200	18,200
	Shareholders' equity	34,391	40,679	44,871	49,658		52,407	52,551	prev SE+RE
	Total liabilities & stockholders' equity	110,317	125,262	160,916	184,873		196,747	207,689
						EFN	-22,463	-52,564	Enter correct formula in G41 and H41
					 		 	 	to calculate EFN for 2022 and 2023
		2018	2019	2020	2021	% change 2018-2021	2022	2023
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	PROFITABILITY
	Operating margin	18.6%	18.6%	15.6%	15.7%	-16.0%	13.2%	10.3%
	Tax rate	24.5%	24.5%	24.5%	24.5%	0.0%	24.5%	24.5%
	Return on sales	10.4%	10.3%	6.7%	6.4%	-38.6%	4.3%	1.9%
	Return on equity	21.8%	20.4%	13.8%	13.7%	-37.3%	9.1%	4.1%
	Return on assets	6.8%	6.6%	3.8%	3.7%	-46.0%	2.7%	1.4%
		 	 	 	 	 	 	 
	LEVERAGE					 
	Debt/equity ratio	113.4%	111.8%	176.1%	202.3%	78.4%	208.8%	228.8%
	Debt/total capital	35.4%	36.3%	49.1%	54.3%	53.7%	55.6%	57.9%
	EBIT/interest	3.8	3.8	2.3	2.2	-43.3%	1.8	1.3
						 
	ASSET USE					 
	Sales/assets	65.2%	64.0%	57.6%	57.4%	-12.0%	63.3%	73.9%
	Sales growth rate	15.0%	11.4%	15.6%	14.5%	-3.3%	4.0%	4.0%
	Assets growth rate	8.0%	13.5%	28.5%	14.9%	86.1%	-5.7%	-11.0%
	Days sales outstanding	112	116	111	122	8.7%	120	120
	Days payable outstanding	133	122	93	91	-31.5%	90	90
	Days inventory outstanding	252	263	423	436	72.6%	435	435
						 			 
	LIQUIDITY					  
	Current ratio	0.8	0.8	0.8	0.9	17.8%	0.8	0.8
	Quick ratio	0.4	0.4	0.3	0.4	-13.7%	0.3	0.3
	Q1a.								 
	- Enter inputs in empty cells in the balance sheet (G25 and G35). Hint: review Wk 6 guideline solutions. 
	- Calculate the % change (yellow highlighted cells) as (ending value - beginning value) / beginning value. F47 has been calculated for you as an example.
	- Using historical financial ratios, judge Apex's performance. 
	Hint for getting started: 
	See sample table in the Ratio Interpretation tab as a quick reference on how to interpret the % change to guide your analysis.
	Then add your comments below each header (Profitability, Leverage, etc.)
	Profitability
	Operating margin	Negative, poor financial performance
	Tax rate	No Impact
	Return on sales	Negative, poor financial performance
	Return on equity	Negative, poor financial performance
	Return on assets	Negative, poor financial performance
	Leverage
	Debt/equity ratio	Negative, higher financial risk
	Debt/total capital	Negative, higher financial risk
	EBIT/interest	Negative, higher financial risk
	Efficiency (Asset Use)
	Sales/assets	Negative, slower turnover
	Sales growth rate	Negative, reduction in growth
	Assets growth rate	Positive, higher growth rate
	Days sales outstanding	Negative, higher credit period allowed
	Days payable outstanding	Negative, lesser credit period obtained
	Days inventory outstanding	Negative, slower turnover
	Liquidity
	Current ratio	Positive, better liquidity position
	Quick ratio	Negative, decline in liquid assets
	Conclusion
	Overall, the financial position and performance has been declined in year 2021 as compared to year 2018.
	Q1b. What information would you need to appraise its business risk and financial risk? Do so to the extent possible.
	Financial risk 
	To appraise financial risks, the other information required are interest rates, foreign exchange exposure, contingent liabilitie and commitment etc.
	Business risk 
	To appraise business risk, the other information required are operational performance, competitors performance, market trends, government policies and regulations etc.
	Q2a.								 
	Calculate EFN in G41 and H41, and explain the meaning of Apex's external financing needed (EFN)?
	Hint: is EFN positive or negative? What does it mean?
	External financing is the funds required to finance the additional assets required. The external financing can be in form of debt, bonds or debentures.
	The EFN is negative in the case which shows that the assets are lesser than liabilities and equity and the company is holding excess money than needed.
	Q2b.
	Can Apex repay the loan, and is the loan within Apex's debt capacity? 
	Debt capacity has been calculated for you in Q6 and copied here for your convenience so you can answer this question.
	Debt capacity calculation	Bust	Boom	Indifference
	EBIT	10,000	20,000	0.0
	Interest coverage ratio per rating	3.4	3.4	0.0
	Available for interest	2,941	5,882	ERROR:#DIV/0!
	Interest rate	7.6%	7.6%	0.0
	Debt capacity	38,811	77,622	ERROR:#DIV/0!
	Existing debt	100,475	100,475	0.0
	Excess debt capacity:	-61,664	-22,853	ERROR:#DIV/0!
	The company is having negative working capital and the major portion of debt is short- term debt so it is difficult to repay the excess debt from existing capital structure.
PEER DATA
	DATA ON PEER COMPANIES (COMPARABLES)
								Number of
		Percent Sales	Price/				Market	Shares	Last Annual
		from Carbon Fiber	Earnings	 	Book	Book Value	Price	Outstanding	Dividend
	    Name	Production	Ratio	Beta	 Debt/Equity	per Share	per Share	(millions)	per Share
	Peer A	20%	9.0	1.10	0.23	1.24	1.37	9.3	1.82
	Peer B	95%	NMF	1.50	1.72	1.46	6.39	177.2	0.15
	Peer C	90%	18.2	1.70	1.33	7.06	27.48	8.9	none
	Peer D	30%	34.6	1.20	0.00	17.75	75.22	48.3	none
	Peer E	45%	NMF	1.50	0.42	6.95	22.19	371.2	1.57
	Note:  NMF means not a meaningful figure.  This arises when a company's earnings or projected earnings are negative.

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